Black Money and Political Funding: A Story That Needs Iterations

Political parties cannot be expected to bring back the black money as they are funded by the same.

Black money is one of the most popular topics of discussion in the country. Successive governments, irrespective of party affiliations, have promised to get all the Indian black money stashed in foreign countries and the so-called tax-havens, and also to reduce, if not eliminate, the black money in circulation within the country. The promises are made seemingly in all sincerity but are usually forgotten with equal alacrity once they assume power. Of course, several schemes, including what are also called “amnesty” schemes (though one fails to see why should it be in the national or public interest to give amnesty to those who have broken the law of the land) are announced with great fanfare. Attempts to sign agreements with foreign governments are publicised whether these are actually signed or not, and without clarity on how much Indian money stashed abroad will actually be returned and how. What seems to continue to baffle some people is when there is so much talk about black money, how come no government is ever able to do anything about it.

The simple and obvious answer to this question is that no government in India has ever been serious about it. It could even be termed anti-national to say this but it stands to reason that if any government really wanted to do something worthwhile about it, something would indeed have been done.

The next logical question that arises is why the successive governments have not been keen to do anything about it. Here again, the answer is simple and obvious. In the final analysis, every government is a political creature, it owes its existence to a political party. It is actually with the political parties that the nub lies. In reality, it is the political and electoral processes in the country which are the biggest users of black money, and since the running of these two processes is the sole preserve of political parties, it is political parties who, in fact, not only condone the existence and use of black money but also work against any effort at reduction of black money in the country. And now they do it without even as much as a fig leaf. Let me present just a couple of pieces of evidence in support.

The 170th report of the Law Commission of India was titled ‘Reform of the Electoral Laws’. This is what the Law Commission wrote in their report submitted May 1999:

“On the parity of the above reasoning, it must be said that if democracy and accountability constitute the core of our constitutional system, the same concepts must also apply to and bind the political parties which are integral to parliamentary democracy. It is the political parties that form the government, man the Parliament and run the governance of the country. It is therefore, necessary to introduce internal democracy, financial transparency and accountability in the working of the political parties. A political party which does not respect democratic principles in its internal working cannot be expected to respect those principles in the governance of the country. It cannot be dictatorship internally and democratic in its functioning outside” (Para 3.1.2.1) (Italics added).

“With a view to introduce and ensure internal democracy in the functioning of political parties, to make their working transparent and open and to ensure that the political parties become effective instruments of achieving the constitutional goals set out in the Preamble and Parts III and IV of the Constitution of India, it is necessary to regulate by law their formation and functioning” (Para 3.1.2) (Italics added).

Let us now move to 2015. In March this year, the Law Commission submitted its 255th report titled ‘Electoral Reforms’. The first substantive chapter in the report is titled ‘Election Finance Reform’. It is the longest chapter in the report comprising almost 31 per cent of the report. The primary rationale followed by the Law Commission in its 255th report is that “Disclosure is at the heart of public supervision of political finance.”

A very important part of the chapter on ‘Election Finance Reform’ is a section titled ‘Understanding the reality of election financing today’. In this section, the Commission makes very significant, and realistic, observations, some of which are worth reproducing in full.

“This is evident from the 2001 Consultation Paper of the NCRWC (National Commission to Review the Working of the Constitution) on Electoral Reforms, which estimates that actual campaign expenditure by candidates is ‘in the range of about twenty to thirty times the said limits.’ In fact, one of the major concerns regarding expenditure and contribution regulation is that the apparently low ceiling of candidate expenditure increases the demand for black money cash contributions and drives campaign expenditure underground, causing parties to conceal their actual source of funds and expenditure” (Para 2.27.2) (Emphasis supplied).

“Therefore, there is clearly under reporting of election expenditure and opacity of political contribution. Part of the explanation lies in the lacunae in the law, and part in black money and poor enforcement” (Para 2.27.6) (Emphasis supplied).

Given that a body such as the Law Commission has chosen to mention “black money” specifically, in the context of electoral expenditure and political contribution, and more than once, should remove any doubts that any one might have about the nexus between political and electoral systems, and black money.

Ensuring disclosure, according to the Commission, “requires strict implementation of the provisions of the Representation of the People Act, the IT Act, the Company Act, and the Election Commission of India transparency guidelines, which need to be given statutory backing.” In addition, the evasion or dilution of disclosure “has to be tackled through a stricter implementation of the anti-corruption laws and RTI and improved disclosure norms” (Italics added).

It will be noted that the tenor of both the reports is similar. A detailed reading of the two reports suggests that not much of significance has happened in the intervening 17 years. The 255th report quotes several portions of the 177th report and makes similar recommendations.

The 2015 report specifically mentions “stricter implementation of… RTI and improved disclosure norms.” Let us now move to “implementation of RTI” in the context of political and electoral systems.

The RTI Act came into operation in 2005. An application requesting for copies of income tax returns (ITRs) of 22 political parties was filed (by Association for Democratic Reforms) with the Central Bureau of Direct Taxes (CBDT) in 2006. Copies of ITRs were received in 2008, after several hearings in which all political parties vehemently opposed making their ITRs public, when the CIC gave its decision on April 29, 2008, asking the Central Board of Direct Taxes (CBDT) to supply copies of ITRs.

Scrutiny of the ITRs revealed that political parties were routinely declaring hundreds of crores of income but were not paying any income tax because section 13A of the Income Tax Act specifically gives a 100% exemption from income tax to the income of political parties. A proviso to Section 13A, however, requires that to avail the exemption, a political party has to submit a list of donations of over Rs 20,000 each to the Election Commission of India (ECI). An RTI application to the ECI revealed that very few parties were submitting this list of donations. Subsequently, Election Commission of India insisted and political parties started submitting the list of donations.

A comparison of the total income declared in the ITRs filed with the IT department, and the donations declared in the statement of donations submitted to the ECI revealed that, on average across all political parties, the donations covered only 25 to 30 per cent of the total declared income. There was also a party which declared hundreds of crores of income but also said that not one of the donations it received was above Rs 20,000. It was clear that, on average, 75-80% of the declared income of political parties was from unknown sources.

Though not knowing that the Law Commission will recommend “stricter implementation of… RTI and improved disclosure norms,” Association for Democratic Reforms (ADR) sent RTI applications to all political parties requesting them to disclose the sources of the 75-80% of their declared incomes. All political parties declined the request saying they were not public authorities under the RTI Act. ADR then filed a complaint to the Central Information Commission (CIC) on March 14, 2011, asking six national political parties to be declared public authorities under the RTI Act. A similar complaint was filed by Subhash Chandra Agrawal, a well-known RTI activist, on September 06, 2011. Both, ADR and Subhash Agrawal, presented data to show that political parties fulfilled the criteria laid down in section 2(h) of the RTI Act. This is the section of the RTI Act that defines a ‘public authority’.

Not unexpectedly, all the six national political parties vehemently opposed the idea of being declared as public authorities. A full bench of the CIC held several hearings where some of the political parties were represented by senior lawyers. Some were represented by their own well-known leaders. After these hearings, the full bench of CIC gave their decision on June 03, 2013 in which it was “held that AICC/INC, BJP, CPI(M), CPI, NCP and BSP are public authorities under section 2(h) of the RTI Act.”

Once again, and not unexpectedly, all the six parties chose to ignore the decision of the CIC and did not comply with it. When the time given for compliance was over, ADR and Subhash Agrawal filed complaints of non-compliance with the CIC. Yet another full bench of the CIC, consisting of a different set of three Information Commissioners, held several hearings. None of the political parties attended the hearings, even when the CIC gave them show-cause notices. After repeated hearings and repeated notices, which were all ignored by all the six parties, the Central Information Commission pronounced a decision on March 16, 2015.

This decision reiterated that the decision of June 03, 2013 which declared the six parties to be public authorities, was “final and binding, the respondent national political parties are public authorities under the RTI Act.” However, it also said that “the Commission is bereft of the tools to get its orders complied with.” While expressing its inability to “get its order complied with”, the CIC did say that “the complainants are at liberty, in view of the facts and circumstances of this case, to approach the higher courts for appropriate relief and redressal.”

It is following the above that led ADR and Subhash Agrawal to a file a public interest litigation (PIL) in the Supreme Court on July 07, 2015.

What does all of the above mean? The following facts stand out:

The Law Commission of India says black money has an important role in the context of electoral expenditure and political contribution.

It also says, “Disclosure is at the heart of public supervision of political finance.”

Six most important, national, political parties stoutly resist attempts at enforcing the RTI Act and disclosure, to the extent of defying the decision of the highest statutory authority responsible for implementing a law that was unanimously passed by the Parliament.

The inescapable conclusion from the above is that no dent can be made on black money in the country till the “formation and functioning” of political parties is not “regulate(d) by law”, as recommended by the Law Commission as far back as 1999.

Since law making is under the exclusive control of political parties through representatives chosen first by them and then by the people, this is not going to happen if it is left to political parties, unless We, the People, force them to do so.

Prof. Jagdeep S. Chhokar (Founder and Trustee, ADR) has a Ph.D. from Louisiana State University, USA and is a former Director In-charge of Indian Institute of Management, Ahmedabad. He had earlier worked with the Indian Railways as a mechanical engineer and manager for over a decade, and as international marketing manager with a public sector organization for four years. He has also taught at Universities in Australia, France, Japan and the US.